The Microeconomics of Terrorism

While many citizens are tempted to delegate responsibility for terrorism analysis and prevention to Homeland Security and other paramilitary government organizations, the factors that motivate individuals to commit terrorist acts are, in fact, very easily understood using simple microeconomic analysis.

Macroeconomics, with its grand theories and front-page pronouncements about gross domestic product, fiscal policy and Federal Reserve policy, receives all the attention. Micro, with its more focused approach on how incentives and costs motivate individual behavior, is the ignored stepchild.

Terrorists respond to incentives and costs as surely as shoppers and businesses do. Running a terrorist cell is expensive, not only in lives, but in dollars. Thus, our most effective method(s) for reducing the incidence of terrorism consists of two comprehensive steps: increase the costs and reduce the benefits.

We can increase the costs of terrorism in numerous ways, some of which involve steps that have already been taken. Countries and regions that harbor terrorists need to pay a high military, diplomatic and economic price. The costs imposed upon Pakistan's Northeast Frontier Provinces, for example, have become so great (as a result of drone attacks and other, more specialized, military operations) are such that politicians in the region have turned a blind eye toward U.S. actions — even if they do not admit so publicly.

Liberal and open Western societies appear vulnerable because of the privacy by which we conduct economic transactions and the openness of our public places and borders. But as was seen in Boston recently, the widespread use of surveillance technology makes it easier to discover culprits and, as we shall see in the future, prevent attacks from occurring by using software to flag suspicious behaviors and objects.

Such software is already in use at many airports and train stations. Those who carp about "big brother" are missing the point. This surveillance is by private companies and individuals — everything from a cell phone camera to an ATM electric eye.

No one I know suggests these are an infringement on liberty. In fact, "eternal vigilance" has always been the price of freedom. Technology is making this vigilance less costly and more effective. Conversely, the costs for terrorists — in terms of prosecution and the costs of evading surveillance — are far higher.

What about the revenue side? Here the task is more difficult. In order for a terrorist organization to receive a steady flow of funds, it must be able to take credit for its acts in a public forum. Websites and Twitter accounts have largely supplanted the mainstream news media for terrorists to boast credit for their actions. But we still see media — especially state-run media overseas — in celebration mode when attacks occur.

Even some U.N. officials felt Boston had it coming. Such media and individuals are every bit a part of the terrorist network as the attackers themselves. As such, they can and should be military/economic targets. They are providing air and comfort to the enemy.

Servers and webhosts of jihad sites are vulnerable to cyber attacks, one of the fastest growing areas of counterterrorism. The same young hackers who bedevil the Pentagon can and are being trained to disrupt these sites.

Many terror cells have merged with drug cartels to siphon off funds. I cannot think of a better reason for decriminalization of marijuana and other categories of "drugs" than the billions that cartels reap because of this protected monopoly status.

As I made clear in last week's article, the War on Terrorism is a marathon, not a sprint. It sometimes appears, like the mythical hydra that from each terrorist head that is nipped off, two sprout back in their place.

Yet Communism was a far more insidious and, unfortunately, seductive lure for decades in the 20th century. If we can vanquish that, we can win this war as well.

While many citizens delegate responsibility for terrorism analysis and prevention to Homeland Security and other government organizations, the factors that motivate individuals to commit terrorist acts are, in fact, very easily understood using simple microeconomic analysis.